Why Mastercard and Visa Lag Despite a Bull Market

Summary

Despite the S&P 500 reaching all-time highs, Mastercard and Visa, key financial transaction processors, have not reached their own peaks set about a year ago, raising questions about consumer health. Financial sector stocks like JP Morgan and even alternative asset managers such as Blackstone and KKR are showing weakness, with some private credit funds experiencing significant redemptions. Oil prices are holding support around eighty-six dollars and a half to eighty-seven dollars, with potential for a break to the downside towards seventy-two or seventy-three dollars, or a push back up towards one hundred ten dollars. Despite crude oil volatility, energy stocks like Valero and OIH are performing well, with Valero hitting an all-time high. The NASDAQ 100, up thirty-five percent in two months, is being driven by its top ten names, with its volatility index, the VIX N, showing less of a decline than expected, suggesting potential underlying market concentration and risk. In the semiconductor space, an equal-weighted index, the SOXX, is making all-time highs, but some investors see danger in this parabolic move, questioning if performance is pulled forward. Broadcom, reporting earnings tonight, has significant growth expectations of around sixty-seven percent year-over-year for earnings and sixty-five percent for revenue this year, trading at forty-four times current year earnings. Software stocks have seen a recent surge followed by a pullback, with Palo Alto Networks facing valuation challenges despite being considered best-in-class. Several storage and memory companies, like Western Digital and Seagate, are also reaching new highs, defying earlier skepticism about their participation in the AI ecosystem. Consumer discretionary stocks such as Shake Shack, Chipotle, McDonald's, and Domino's Pizza are indicating consumer strain, with companies unable to pass on inflated costs. Walmart is also showing weakness, trading at a premium valuation of forty times this year's earnings, while Target is showing signs of a turnaround. Geopolitical tensions, particularly concerning Iran and potential disruptions, could keep crude oil prices above eighty-five dollars, contributing to persistent inflation and a weaker consumer. The bond market is signaling a potential shift away from a twenty-five-year bull market, with rates expected to move higher.